漢瑞祥 (HSIC) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Henry Schein fourth quarter conference call. [OPERATOR INSTRUCTIONS] I would now like to introduce your host for today's call, Susan Vassallo, Henry Schein's Director of Corporate Communications.

Please go ahead, Susan.

Thank you, and my thanks to each of you for joining us today to discuss Henry Schein's fourth-quarter results.

If you have not received a copy of our earnings new release issued earlier today, please call 631-843-5937 and we will fax a copy to you immediately.

Or of course, you can obtain a copy on our web site at Henry Schein.com.

With us this morning are Stanley Bergman,Chairman and Chief Executive Office of Henry Schein and Steven Paladino, Executive Vice-President and Chief Financial Officer.

Before we begin, I'd like to point out, as always, certain comments made during this call will include information that is forward-looking.

As you know, risks and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements.

As a result, the company's performance may differ from those expressed in or indicated by such forward-looking statements.

Further, these forward-looking statements are qualified in their entirety by the cautionary statements contained in the company's securities and exchange commission filings.

The content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, February 22, 2006.

The company undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.

Now, I'd like to turn the call over to Stanley Bergman.

Good morning, ladies and gentlemen, and thank you very, very much Susan.

We're very, very pleased to report our numbers this morning and our prospects for the future.

Our excellent fourth-quarter results from continuing operations cap off a year of solid financial performance for Henry Schein, Inc.

On a comparable basis, net income growth of just under 40% and earnings per share growth of 37% for the fourth quarter, completes what we believe to be an extremely successful 2005 with both net income and earnings per share growth, growing by 21% for the year.

In November 2005, we celebrated our tenth anniversary as a publicly traded company and in a moment, I'll address our significant accomplishments during the past year.

But I think our consistent growth from a top line point of view, from a earnings per share point of view and a cash flow point of view, is in our view very much indicative of the healthy market that we're in, and the terrific business model that Henry Schein has developed over the years.

But we'll talk about that as the call progresses.

So again thank you for calling in and Steven, why don't you take us through the specifics with respect to the fourth quarter numbers.

Okay.

Thank you, Stan.

Let me begin by saying that I am very pleased to report strong financial results for the fourth quarter as well as for the full year of 2005.

First I'll talk about as we discussed last quarter in our earnings news release and conference call, all of our current and prior year financial information has been restated to report the hospital supply business as a discontinued operation and therefore to exclude that business from the details of the income statement.

Sales from the hospital supply business were $39.8 million in the fourth quarter and $152.8 million for the full year of 2005.

You can see further information on the details of the hospital supply business on "Exhibit C", included in our earnings news release.

The loss on discontinued operations after tax was $754,000 for the fourth quarter.

At this time I can report that we have made significant progress on divesting this business and expect to complete the sale of the hospital supply business in the not too distant future.

At that time, we expect to record a loss on the sale of the hospital supply business.

For purposes of comparability, I will discuss our results from continuing operations without the hospital supply business in both the current and prior periods.

Let me also point out that in the fourth quarter of 2004, included a one-time after-tax charge of approximately $8.4 million related to our contractual arrangement with Chiron Corporation.

All comparisons of 2005 results for the prior year are presented excluding that one-time charge as applicable.

Please see" Exhibit B" of our earnings news release for details on that charge.

Looking at our sales, our net sales for the quarter ended December 31, 2005 were $1.34 billion, reflecting 16.2% growth over the fourth quarter of 2004, or 18.4% growth in local currencies. 13.5% of this growth was internally generated while 4.9% was acquisition-growth primarily due to, Ash Temple in Canada and the Halas and Shalfoon acquisitions in Australia and New Zealand, as well as, Demedis operations in Austria.

The fourth quarter 2005, Included one additional week compared to the fourth quarter of 2004.

This occurs every five years for Henry Schein given that we are on what's called a 52-53 week year-end be that fiscal year-end, ends on the last Saturday of December.

The extra week was the holiday week between Christmas day and New Year's Day and includes four shipping days.

As I will discuss later, estimating the impact of the extra week on sales is really not a precise calculation, so we are presenting that estimate as a range.

We estimate that the impact of this additional week in the fourth quarter of 2005 was about 5 to 6 % and, therefore, we estimate that the sales growth of the quarter would have been between 10.5 to 11.5%, over the fourth quarter of 2004.

You can see the details of our reported sales growth in, " Exhibit A", of our earnings news release.

Our operating margins for continuing operations for the fourth quarter of 2005, was 6.6% and that was 115 basis points greater than the comparable operating margin in the fourth quarter of 2004.

Approximately, 60 basis points of that expansion was due to the favorable impact of influenza vaccines sales during the quarter, while the remaining 55 basis points of expansion resulted from our core businesses.

The 55 basis-point expansion in March for our core business is slightly above the high-end of our corporate goal of 30 to 50 basis points of operating expansion margin per year.

Our effective tax rate for the quarter, from continuing operations was 36.5% and that compares to about 37% in the fourth quarter of 2004.

We expect our tax rate during 2006 to continue in the range of 36.5%.

Our fourth quarter net income from continuing operations was $52.5 million, which is an improvement of 38.9% from the prior year's fourth quarter on a comparable basis.

EPS from continuing operations also for the fourth quarter of 2005 were $0.59, reflecting a 37% growth over the fourth quarter of 2004 on a comparable basis.

If we take a look at our financial performance for the full year of 2005, our sales were an all-time record $4.6 billion, reflecting 18.9% growth over the prior year, including 8.4% growth internal local currency growth.

We also had operating margin expansion of 34 basis points on a full year basis over 2004 on a comparable basis.

And our net incomes and earnings per diluted share both increased by over 21% over the prior year on a comparable basis.

Both our annual sales growth on an internal basis and operating margin expansion were both in line with our corporate goals of high single digits internal sales growth and 30 to 50 basis points of operating margin expansion.

Let me now provide you some details on our sales results for the quarter.

Our dental sales for the fourth quarter were $535 million, representing 17.4% growth in U.S. dollars or 17.1% in local currency. 12.2% of that growth in local currency was internally generated and the remaining 4.9% was primarily due to the acquisitions of Ash Temple in Canada and Barton-Cyker in the United States.

Our consumable merchandise sales for dental were 15.9% ahead of the prior year in local currencies with 11% of that growth internally generated and remaining 4.9% again due to acquisitions.

Our dental equipment sales and service revenues were 20% ahead of the prior year in local currencies, 15% of which was internally generated and 5% due to acquisitions.

Medical sales were 424--425 million in the fourth quarter up 20.8%, 19.6 of this growth was internal and 1.2% was due to an acquisition.

Our medical sales excluding the sales of influenza vaccine in both the current year and prior year increased by 13.2% over last year, with 11.9% of that growth internally generated.

Moving to our international group, our international sales for the fourth quarter of 2005 were $358 million, that is U.S. dollars, up 10.3% over the prior year.

And growth in local currencies was 18.5%, 9.3 of which was internally generated and 9.2% of the growth was due to the acquisitions of Demedis in Austria and the Halas transaction.

Finally, our technology and value-added service sales were 23.8 million, up 4.7% over the fourth quarter of last year.

The E services component of our technology and value added service sales continue its strong trend of double-digit sales growth and this was partially offset by lower software sales in the quarter.

Let me point out that we still believe that we are selling more dental practice management systems than any of our competitors in the market, although the market is more saturated than it was in prior years.

It's also important to note that our leading presence in the practice management software area continues to provide us excellent opportunities for sales of high-tech dental equipment such as digital X-rays, and, of course, the sigh tech equipment is reported as part of our dental equipment sales.

As I mentioned earlier, the fourth quarter of 2005 included an extra week compared to the forth quarter of 2004, again, estimating the impact of the extra week on sales is really not a precise calculation.

Let me give you some reasons why.

For equipment and technology sales, these are large-ticket items that require a significant investment decision on the part of the customer.

A decision that we believe is not likely to be proportionately impacted by the inclusion of extra week for the quarter.

Also, for consumable merchandise sales, many of our customers are on sales plans that require a certain dollar commitment for the quarter and these sales are also in our opinion not likely to be proportionately impacted by the extra week in the quarter.

These are just two of the factors that make it difficult to develop a precise figure for the impact of sales related to this extra week.

Therefore, we will present the estimates for sales growth excluding the impact of the extra week as a range rather than as a specific percentage.

So, without the impact of the extra week, we estimate that total dental sales growth for the fourth quarter was between 11 and 12%.

We further estimate that dental consumable sales were between 10 and 11%.

And equipment sales for dental were estimated to be between 12.5 and 13.5%, all over the prior year's fourth quarter.

Again, adjusting for the extra week in the current year we estimate that had medical sales were up 14 to 15% and excluding sales of influenza vaccine we estimate that our medical sales grew by 6 to 7% over the fourth quarter of last year.

Our international sales adjusted for the extra week were estimated to increase by 6 to 7% over the fourth quarter of 2004, and finally adjusting for the extra week on our technology sales, we estimate there was a slight decline of approximately 2 to 3%.

Let me now turn to our balance sheet and highlight some of the metrics in our balance sheet and cash flow.

First, our operating cash flow for the quarter was $151.6 million and that compares to $132 million in the prior year's fourth quarter.

Our operating cash flow for the full year was $265 million, and we are really very pleased with this very strong cash flow from operations for both the quarter and the full year.

Let me also point out that free cash flow for both the quarter and the full year was well in excess of our net income from continuing operations.

Our accounts receivable day sales outstanding from continuing operations was 37.6 days for the fourth quarter, and improvement of approximately 1.7 days over last year's fourth quarter.

On a full year basis, our DSO or day sales outstanding, also from continuing operations, was 41.8 days, and that's compared to 42.8 days for 2004.

Our inventory terms from continuing operations in the fourth quarter were 8.1 turns an improvement of approximately .7 turns from the fourth quarter of 2004 and on a full year basis our inventory turns from continuing operations was seven turns and that's up from 6.8 turns in 2004.

Looking at our return on committed capital from continuing operations, that was 38.3% for the fourth quarter of 2005, and that improved from about 29% in the fourth quarter of 2004.

On a full year basis the return on committed capital from continuing operations was 30.9% and that's up from 27.3% for the full year 2004 on a comparable basis.

I'd like to conclude my remarks by affirming guidance for 2006 as we first announced on November 28, 2005.

Our diluted EPS is expected to be in the range of $ 2.20 to $2.26 per share, excluding the impact of expensing stock options and we have estimated the impact of expensing stock options to be approximately $0.12 per diluted share.

Our EPS growth is expected to be in the low double digit percent range for the first half of 2006 and then to accelerate for the second half of the year due to the impact of seasonal influenza vaccine sales and also the timing of certain expenses in the first half of the year.

This EPS guidance for 2006, includes our expectations that we will distribute between 15 and 17 million doses of influenza vaccine for the full year 2006, and that will include product manufactured by Glaxo Smith Klein, which now includes the former IG Bio Medical, Kyron Corporation and [Sanafee Pastore], and I note that EPS guidance does not assume that we will distributing [Medamunes] Flu product in 2006.

The 2006 guidance is for continuing operations and completed acquisitions and does not include the impact of any potential future acquisitions.

So with that, let me turn it over to Stanley.

Thank you very much, Steven.

Let me take a moment or two to summarize the highlights of 2005 for each of our business groups and then provide some metrics, which we actually think are quite impressive from our first decade as a public company.

On the dental group side, for the full 2005, we reported 18% annual sales growth in the dental group.

Building upon double digit growth in 2004 and as well as 2003, we continued to gain significant market share we believe in the North American dental market as a result of our privileges, customer loyalty program, of course, the importance strategic acquisition in Canada, expansion of our product offering and the investments we have made in the field sales force training arena.

Our dental business is further strengthened by our initiatives in the E commerce and information technology area and our market leading dental practice management software, Easy Dental and DENTRIX and the later clinical applications.

Of course, another key factor driving our dental growth is the privileges program, as I mentioned.

We added more than 5,000 privileges members during 2005, including about 1800 alone in the fourth quarter.

This brings the total number of privileges members to over 21,000, privileges members continue to show strong sales growth.

In July of 2005, we entered into an agreement with DENTRIX to market and sell service there for full-line of digital radiology products.

The DENTRIX Sensor, delivers excellent image quality, is easy to use, and provides a great degree of patient comfort.

So it is understandable why it is among the industry's leading solutions.

This new agreement with DENTRIX enhances the value that we at Henry Schein can offer our dental customers in the North America arena.

Our agreements with DENTRIX is yet another example like the [Pedtron] agreement and the Colgate agreement of a manufacturer that has previously sold direct and take advantage of our proven expertise in marketing to our dental customer base.

Through our acquisition of Ash Temple, limited, a little more than a year-ago, we doubled our field sales force in Canada, strengthened of course, our dental equipment business, gained a strong presence in the Canadian dental laboratory market, and became the leading distributor in the Canadian dental market.

We believe we were already the leading distributor from consumables point of view before the merger but now this definitely puts us way ahead of anyone else.

Also, about a year-ago, United States dental business was named as an authorized dealer of the [SirRona] full-line of imaging [inaudible]. [SirRona] high-end products command a significant share in the market in the dental industry, and [SirRona] manufactures products within two of the fastest dental categories in this country.

Namely, Digital Radiography and the Electric hand pieces.

We are also, [SirRona] leading distributor in Europe.

I would like to now turn to E4D and provide update on development of E4D our CadCam Restorative System that we will be distributing on an exclusive basis.

We looked forward to bringing this exciting dental technology into the marketplace on an exclusive basis during this year.

We continue to maintain close contact with the products manufacturing E4D technologies of Texas and remain confident in E4D's ongoing development and pleased with the tremendous amount of work in progress that has been accomplished since we last provided an update.

As part of the overall product development plan, to bring the product to markets, and independent team of consultants evaluated E4D and development process and the report was really very, very good.

The consultants confirmed that E4D system is a unique product with distinct advantages over the competition.

While we understand that for some, pinpointing the exact date for market introduction is important.

We had Henry Schein feel strongly that ensuring a successful product introduction is more critical and results in many years of customer satisfaction and a strong revenue and earnings contribution, so for this reason we believe that providing a specific product launch date places the emphasis on the wrong objective.

For us, the success of the launch is what we're focused on, and not the precise date when the first machine will be shipped to non-Beta sites.

We continue to showcase as I think people are aware, E4D at dental shows.

Most recently at the Yankee meeting in Boston last month.

The feedback we have received and the purchase intent remain very, very positive.

E4D will be at the Chicago mid-winter meeting later this week and obviously if anybody, any of our investors would like to visit with the SCHEIN team at the Chicago mid-winter meeting and receive a demonstration of the product, please let Steve Paladino or Susan Vassallo in our communications department know and we will arrange for the appropriate tickets.

Now, for something else that's exciting on the dental side, we recently launched a new service called dental resource center at the greater New York dental meeting in December, early December.

This is a subscription-based internet service for dentists with a host of options including product modules, interactive manufacturing instructions, equipment manuals from the leading equipment manufacturers, and accredited CE courses and much more.

Services such as this will help us further enhance our customer relationships with exactly the kind of initiative that we're working on, value-added services that help our practitioners run a better small business and provide better clinical care, and of course in the end we'll provide loyalty and continue, we believe, to move market share of consumable and equipment products, software products as well, towards the Henry Schein business.

So, we're very, very pleased with the status of our North American dental business and of course if there are more specific questions later we can address those.

Let's turn for a minute to the medical group.

Annual sales growth in our medical group during 2005 was approximately 9%.

This growth includes the resumption of distribution of Chiron Fluvirin Influenza Vaccine in the fourth quarter.

Going forward we believe that we are well positioned to remain a reliable provider of influenza vaccine through 2006 and beyond, through contractual agreements with GSK, Chiron and [SanFee Pastore] We've had agreements with all three of the expected providers for 2006 season.

This accomplishes our goal of diversified outsourcing of influenza vaccine for the future.

In our ongoing effort to expand our product offering, our medical group entered into two new distribution relationships.

We are now distributing laser scopes line of medical lasers for the aesthetic procedures in the physician office space.

And we also entered into an exclusive agreement with Luppin Pharmaceutical generic equivalent for the branded pharmaceutical broad-spectrum antibiotic for intravenous and intramuscular administration.

That launch was also quite successful and we expect over time to introduce other products from the Luppin Group.

We would like to expand our medical products offering and beginning to see the positive impact of these new distribution agreements.

We are enthusiastic about our prospects in the future in position in the vet marketplace and the alternative arena in general.

With in the year 2005, expanded our field sales consultant force to approximately 400 professionals and now have a presence in all of the 48 contiguous states in one form or another.

So I'm sure you will agree that the medical business is doing well.

I think we've annualized out the shedding of the low-margin pharmaceutical business, and are heading towards increasing our position margins even more successfully in the year to come.

Now, let me turn to the international group.

I think everybody is aware that we've added significantly to this group in 2005, for the year the sales grew by over a third, in fact, 35%.

A key component of our international strategy and primary driver of sales growth in 2005, has been strategic acquisitions, although the internal growth has been very good and, in fact, we've gain market share by internal growth on a standalone basis as well.

In mid-May, we announced the acquisition of Halas Dental in Australia and Shalfoon Brothers in New Zealand.

Both companies are leading full service providers of dental merchandising equipment with a number of important products exclusive.

With these acquisitions, we became the clear market leader in both the Australian and New Zealand markets.

In particular, during the past two years we have made important strides in expanding our already strong presence in Europe.

One that really is unmatched.

There is no other distributor that has the breadth of product offering, the geographic presence, the brand of equity that we now have in Europe.

By the way, growingly under the Henry Schein brand, per se.

In 2005, we closed on the Austrian portion of the Demedis acquisition after a lengthy process and that is well-embedded win the Henry Schein organization in Europe.

Our European operations hold great promise for growth and future synergies.

And we feel comfortable that over time the opportunity in Europe presents very, very similar opportunity in the United States.

Actually, pan-European competitors are not very strong and arguably there is a case for saying in the long run our European business is presents greater opportunity even in the U.S.

Of course, the integration of those newly acquired international businesses is key to our further growth and profitability.

The priority right now is integration of all companies acquired in the Demedis transaction which is proceeding according to plan.

We expect to continue to generate expense synergies and margin enhancements over the next coming years, probably the next two years or so.

The integration of our New Zealand business is virtually complete.

And in Australia, we developed a solid integration plan and have completed integration of equipment side of the business, actually always the harder part because equipment systems are not standardized on a global basis, they have to accommodate local needs, but that's done and our equipment business in Australia is actually starting to show some good results.

And early part of March, we finish off the integration of the remaining consumable business and eliminating the duplication of warehouses.

We have five warehouses, Henry Schein warehouses in Australia, and Halas had five and we've taken us down to best of breed of five utilizing a common computer system, and actually it's come together very, very nicely.

So that is a bit of a report on the past year, the past quarter.

We've reached an important milestone at Henry Schein.

It was November of last year that we went public ten years before that.

And as I mentioned in my opening remarks, the fourth quarter of 2005, really was an important anniversary for Henry Schein.

Ten-years-ago on November 3rd, 1995 to be exact, Henry Schein common stock began trading on the NASDAQ market following a successful IPO at a split adjusted sales price of $8 per share.

And, among, of course our reasons for going public is to provide funding for future growth and I think you will agree that by most metrics, in fact, all of the important distribution metrics, metrics for the distribution business, our growth has been really impressive.

Let me just provide you some highlights of our accomplishments of progress during the past 10 years.

Please note that all ' 95 financial information that I will discuss is as originally reported, all of the information over the last 10 years, shall we say, and on a pro forma basis as indicated in our earnings release.

Since ' 95 our net sales have grown at a compounded annual growth rate of slightly more than 22%.

That's rising seven-fold from 616 million in ' 95 to 4.16 billion in 2005, with, I might add, a very healthy mix of internal and acquisition growth.

We've made over 100 acquisitions integrated them.

We do about 10 a year of varied sizes.

They've all been integrated and in general quickly present accretion to us.

This, of course, puts Henry Schein on the fortune 500 list.

We first made that list in 2003.

Of course, sales growth is the fuel, but at the end of the day not the objective in itself.

Growth in operating income is at the end what is important, and here we had an even higher compounded annual growth rate during this period taking out 20-plus percent sales growth and matching it with over 30% compounded annual operating income growth.

This grew 14-fold from the nearly 20 million a decade ago, up to $281 million this past year.

So that was obviously driven by the operating margin which has expanded by 30 basis points during this year from just over 3% to ' 95 to 6% today.

And as our operating model calls for and we are very confident that we will deliver on this, we expect to realize further enhancements to our operating margin as we continue to leverage our global infrastructure.

The 10-year income compounded annual growth was higher yet, 33%.

Net income during this period rose 18-fold from 9 million in '95 to 162 million in 2005.

And what's important here is at the end of the day the earnings per share, which stood at a split adjusted $0.35 in '95 reached $1.82 in 2005 representing an 18% compounded annual growth rate.

So I think by the metrics that are important in our book, we have done what we promised to do, and more.

And what I think is important here, as Steven often reminds me, is the quality of the earnings.

It is not good enough to just have EPS growth, you have to turn that into cash, and as represented by this year, we actually took a bite out of our working capital and not only turned our earnings into cash, but actually liquidated assets in the process and we think there is lots more to go there.

The stock market rewarded our progress during this past decade as well.

Our stock price increased at a compounded annual growth rate of 19% from our IPO price and our market capitalization went from about 300 million, 10-years-ago to approximately 4 billion today.

Maybe a little bit more.

Certainly these 10-year metrics reflect an outstanding pattern of growth of increasing profitability since we became a public company, and we really believe that the markets we're in are healthy, there is no need to go beyond the markets we're in.

We in 2004 added 19% market share of $19 billion market.

We expect that market had grown by about 5% and when the data was out we report that to shareholders.

So we expect that we're probably somewhere around 20% or little bit more market share, maybe a little bit more of a 20-plus billion-dollar market.

Half that market we think is still in the hands of relatively undercapitalize players.

So we remain very enthusiastic about continued internal growth and prospects of further acquisitions.

We've done 10 acquisitions approximately each year.

There is no guarantees that we can continue to do that, but internally we're prepared to do another 10 or so a year.

We are pleased to report that in January of this year we were the one of really 12 companies designated as turbo charged stock by Forbes magazine in newly released platinum 400 list of America's best companies.

We earned distinction by posting growth rates of at least 10% over the past five years in both sales of diluted EPS.

Henry Schein is the only representative from our industry to earn the turbo charge designation.

We also listed as this past I think press release issued by Fortune Magazine today, as one of America's most admired companies.

I mention all of this because I think it is reflective of the hard work of our 11,000 team SCHEIN members who we believe are highly committed to our culture, which we believe is unique.

I think that it's important to stress that.

This unique culture, has enabled us to take advantage of a good marketplace and execute on a different model to that of our competitors and one we believe on, and one that has been successful.

So in closing, we see the management team, by the way, which is stable.

It's essentially the same team that affected the what really was management buy-out from the SCHEIN family, using the SCHEIN family stock capital and I think we liquidated their position three years ago, we delivered to the family what they were looking for and we delivered to the shareholders that joined us in 1995, I believe what the street was looking for, and more.

And so we remain very, very enthusiastic about this business, the markets we're in are terrific, growing at about 5% organically and we believe we have the right model, the right motivation, within the team to continue to consolidate that market, and the bench strength on the management side.

We've been adding to our management team each year at the senior level.

We believe we're well positioned in the North American arena, good succession plans in place and have a very, very good team in Europe that we've put together that we believe will be able to continue to drive the merging obvious businesses that we've acquired and add to that, and accordingly increase operating margins.

So with that in mind, I want to thank those shareholders that have had confidence in us over the past 10 years and Steven and myself stand ready to answer any questions that you may have.

And just to reiterate, we are very, very enthusiastic about this business, have been for years, and believe that we have the bench strength in management and the succession to make sure that our businesses all have the right management to take advantage of this terrific market and the model that we've developed.

Thank you very much.

[OPERATOR INSTRUCTIONS] Your first question will come from the line of Glen Santangelo at Credit Suisse.

Hi it's actual Ralph [Jacobe] in for Glenn.

Can you talk about your flu assumption for the year?

Looks like you're looking for an incremental 3.5 million doses from the midpoint of previous expectations.

I guess just where does that come from?

I know when you first gave that other 10 to 15 million guidance, you didn't include [Sanafee], so I'm assuming some of it's from that.

If possible can you break down your assumptions by manufacturer and maybe range?

Yes, on our last conference call and then in our press release last quarter, we did say approximately 10 to 15 million doses and this quarter we upped it slightly to 15 to 17 million doses.

The primary reason was because we did enter into an arrangement with [Sanafee] and, therefore, that increased the overall range.

On the other hand, what I don't want to do because we're restricted by non-disclosure arrangements is to give the exact amounts from three manufactures we have contracts with.

Only additional color I'll give you is that the largest component is from GSK, that bought the former ID Biomedical, but there is also important components from Chiron and [Sanafee.]

Next question will come from Larry Marsh, Lehman Brothers.

Thanks, and good morning, Stanley and Steve, and it's been a quite a prosperous 10 years for you, I guess, really almost 15 or so, so thank you for running through that.

I guess, Steve, a couple questions for you.

If I could.

The internal growth numbers you talked about, you said 11 to 12% total dental, 10 to 11 consumables and 12.5 to 13.5%, would we back out acquisitions to get to roughly a 6 to 7% consolidated number internally?

Is that how we should think of that?

No, not exactly.

Numbers you quoted is excluding the impact of the extra week, based on our estimates.

So that would compare to the total growth for each of those categories that's in the press release that we actually reported.

And basically, the simplest way to do that is the same relationship that the total growth and the excluding the impact of the extra week is on total growth, would probably be a similar relationship between internal and acquisitions.

But, Larry, we did not go through that level of calculations, because it just, you know, we're really splitting hairs with that.

But the relationship should be very similar.

Okay.

Larry, the bottom line is, it's very difficult to calculate specifically on equipment side what is a attributable to that extra week.

Suffice us to say we believe in every major category and even within the equipment category, and within the consumable book category, we are gaining market share across the board.

Okay.

So, Stanley, so you would say your growth rates as you look at your business, are--were consistent in the fourth quarter from what you had seen earlier in '05?

Is that the message?

Well, I would say, yeah, relatively consistent.

Obviously they're not exactly consistent.

But we certainly had on an internal basis we certainly gained market share and really all aspects of the business, both domestically, on the dental, medical, as well as internationally and even in the sub components in dental on consumable and equipment side.

Really the fourth quarter results, we're really very strong on the top and bottom line, and the extra week, we really tried to be as transparent on the street as possible by preparing estimates.

But as I said remarks on the script, it is not up to precise calculation in determining exactly what the impact is for the extra week.

Okay.

I understand.

And just I know you're not giving breakdowns of top line guidance for '06, but in general are you anticipating roughly similar types of dental growth this year than you saw this past year?

Or are you not breaking it down that specifically?

Well, I think what we'd rather say, Larry, because we haven't given that level of detail, is that our overall model we still very comfortable with the overall model of high single digit, internal sales growth, continued margin expansion point of 30 to 50 basis points, that should translate into mid-teens EPS growth rate.

On top of that we should have the additional benefit of having access to more influenza vaccine in 2006 than we did in 2005, and that's why our guidance, midpoint of our guidance is 24% growth over the reported numbers for '05.

We don't want to really be getting into the level of detail of providing more specific metrics, at least at this time.

And unfortunately because our prepared remarks ran a little over I think I really should move to additional questions and, Larry, if you want to follow up I'd be happy to spend time with you on the phone after the call.

Larry, to reiterate, not to harp on this, our expectations are that the market is growing at about 5% and we've always had an objective of growing at a couple of hundred basis points somewhere between 200 and 400 basis points above the markets and I'm talking about internal and we still feel quite comfortable that we will be able to do that on a company-wide basis and that excludes any impact of low margin although that has all been shed, but if some drug comes along and we distribute that at a lower margin I would leave that out of the numbers.

This is just the core business as we know it today.

Your next question will come from the line of Chris McFadden from Goldman-Sachs.

Thanks very much.

Two related questions.

One, could you provide some more detail update relative to some restructuring and integration programs you have going on in Europe and what your expectations are in terms of improving the margin of your European dental operations?

And then in terms of the fourth quarter, you've given obviously some detail relative to what the sales contribution was.

Could you offer or any additional clarification of what you think the margin contribution was on the reported fourth quarter given the extra week?

Thank you.

Yes, Chris, on Europe, on international, shall we say, you know, we always had a very good margin in Europe--when I say always, talking about the years before the acquisition Demedis.

When we acquired Demedis, essentially the full-service business of Demedis in Germany was not profitable.

Not the German business.

We put those two together and end up with a couple of hundred basis points in our international business which after the first several months we took to about three months and we expected to end the integration period which will be this year plus two more years we expect to be operating margin over 6% on our European business which will continue, of course, to grow.

So that's the overall opportunity, at least in the short-term, and the integration is going according to plan.

Belgium and Holland are done.

The warehouse is closed there, moved to Germany.

The entire full-service operation, the two businesses that SCHEIN and Demedis business, we will be completing integration of, platform in the late quarter or so, and we turn to integration work in Austria and essentially those are the big, big opportunities and then there is synergies with our Western European business, which will get us to about a 6% margin within the next couple of years.

Let me also just quickly answer your second question.

On the bottom line basis, the P & L impact for the extra week was really not material, and that the short answer as to why is because the extra week contributed four additional shipping days but the bulk of our expenses like payroll, benefits, occupancy costs and interest charges, we get five days of costs with only four shipping days.

From a bottom line perspective it is not material to our bottom line.

Your next question will come from the line of Lisa Gill with J.P. Morgan.

Thanks, it is actually Mike [ Mincheke] in for Lisa.

Two quick questions.

I recognize it is difficult to adjust for the extra week in the dental equipment side.

I was wondering if you could talk about any trends you are seeing in the segment as it relates to the growth and high tech equipment segments given your competitors had issues on the basic equipment side.

Secondly as it relates to E4D, I wonder if you could talk about your EPS guidance related to that product.

I'm not sure I would like to address our competitors in the marketplace.

Suffice to say from overall point of view about 30% of dental expenditures are in the equipment area because of our late entry into the equipment market, our share is still only at the low 20s.

So I think the gap between the low 20s and the 30s is being closed each year a little bit more, and that I think is contributing to our equipment market share growth.

The taking of market share is not necessarily related to any particular one distributor, but is relating to the fact that we're now getting more and more of the equipment business from our own customers.

And I think that will continue.

We still believe that the equipment marketplace is a good marketplace all round.

However, I'm particularly enthusiastic about the digital X-ray and E4D product which we hope to launch later this year.

As far as the mathematics of what's included in our projections, with respect to E4D for 2006, I think we've been pretty clear on that and from a map point of view there is really nothing of any consequence included primarily because of the sales will of course be used to support the field efforts as we--as we introduce those products and I think that is sort of comes to more or less a equal number in the early part of introduction.

Great.

Thanks.

And your next question will come from the line of Robert Willoughby of Banc of America securities.

Thank you, it is John Wood.

Steve, could you provide an indication of your pricing strategy for the Evolution 4D and will that product be priced in line with the competing CADCAM technology?

It will be competitive with the existing technology, but we have not announced our pricing at this point.

The simple reason is that because we want to wait until we have a launch date, obviously.

And we're internally discussing, because we do believe that the product has specific benefits from the competing product and we're not sure if we're going to price it, very similar pricing or premium.

But it will be very, very similar.

Great.

Thanks.

Can you give me a vet sales number in the quarter?

Not sure if I missed that.

We didn't break out vet specifically because now, if you look at the medical group, vet is really a very small piece of our overall medical sales at this time.

And, I can tell you that on a full-year basis we're running at about $80 million for full year, 70 to $80 million for 2005, and the vet business in the fourth quarter was down slightly because of a change from a principal sale to an agency sale of one of the manufacturers from last year to this year.

But from an apples- to-apples basis we actually did have high single digit growth on our vet business.

Thank you.

And your next question comes from the line of Suey Wong of Robert Baird.

Can you please go over some of the incremental impacts of numbers this year.

Talking in terms of inclusive you won, new power plant, you mentioned the Dentrix digital X-ray and E4D could be positive down the road and increase [inaudible] what else am I missing here?

Suey, the new exclusive that, were currently, that have been process or completed already, we haven't given revenue guidance for E4D at this time and let's wait until we launch the product before we start giving revenue guidance.

On Dentrix for the quarter it did have a positive impact to our sales contribution but it was small.

I think it positively impacted overall dental group of about 1% for the fourth quarter.

And the flu vaccine obviously there will be significant increase for flu vaccine for the year '06, assuming we get that 15 to 17 million doses.

At this point while we're still working on a number of different initiatives to see if we could get additional exclusive, nothing is ready to discuss.

So as something happens, we'll report it on our conference calls.

Next question.

Can you please put out the mix between basic equipment and high tech equipment in dental equipment sales?

Yes, I don't have the exact number, but probably something in the low 20% range of our total equipment is high-tech equipment for us.

It could be about 22%, but it's somewhere in that low 20% range.

I don't have the exact number at my fingertips, Suey.

Next question comes from John Kreger from William Blair.

Thanks very much.

Two quick questions.

Could you give us the U.S. dental force sales numbers?

Sure, U.S. dental sales force numbers were at the end of the fourth quarter 902-field sales representatives.

That's up four people from the third quarter.

And just to give you the worldwide number, worldwide basis we were 2,208 field sales representatives at the end of the year, and down 10 representatives from the third quarter but that's related to the integration primarily up in Canada.

Great.

Thanks.

And then my other question, Steve, can you just talk a bit about your distribution center network and maybe contrast North America to Europe.

Where do you stand now in terms of utilization and any meaningful initiatives ongoing to perhaps add space or perhaps consolidate some of your facilities?

Well, in the U.S., as well as Canada, North America, we feel comfortable that our existing network has sufficient capacity to last us--well, at least in the next few years, maybe longer depending upon what sales growth is.

We're probably at the roughly 65 to 70% capacity range in the U.S. market and there are some things that we can do to increase that capacity with minor capital expenditures, and that at some point we would have to have additional CapEx.

In Europe, other than in France, where we're planning on moving into a new distribution center in 2006, we think really that we have sufficient capacity throughout Europe and we're currently evaluating the the distribution network to determine if we have the right number of distribution centers throughout Europe.

There may be an opportunity there and then finally in Australia, with the acquisition of Halas, we will be consolidating our distribution network from about 10 distribution centers that we have on a combined basis, to about five distribution centers after the integration occurs.

So we're really well positioned of our network having additional capacity and that is a big driver of our margin expansion.

And your final question will come from the line of David Veal at Morgan Stanley.

Thanks.

Just one follow up on something, Stanley, you said earlier, and correct me if I'm wrong, there were still lots of room to go in terms of liquidating assets.

I'm wondering are there still assets in the portfolio now, currently that you would consider liquidating and is the vet business one of those and can you talk about that.

What I meant in terms of liquidating assets I meant working capital, per se.

And, no, and that we expect to take a bite out of our working capital over the next year's not only in the receivable--inventory area, but also on the accounts receivables side.

We think we're doing well in both areas and have great opportunity.

No, we have no desire to sell our vet business.

It's an area--it is a business that I don't think will come material, but it's a part of our business that fits in very well with our model, and I think you could expect to see us expand in that field both in the United States and Europe, but again I don't think it will be material from Henry Schein point of view but it will certainly add accretion to SCHEIN over the years to come.

Thank you ladies and gentlemen, sorry to rush you.

But we did want to cover the 10-year history today, so we went over the prepared remarks by a few minutes.

And if there is anyone that has any further questions, of course, Steven at 631-843-5915, and Susan at 5562, will take your questions and I believe they're both available or certainly Steven is and Susan will be on a plane for a while today, but both will be available during the day today and definitely tomorrow as well.

Thank you very much for your interest as I note that in the call in my prepared remarks, Steven and myself and Senior Management at Henry Schein are extremely enthusiastic about our future the morale in the company's excellent and we're very, very excited with the opportunity we have ahead of us in this terrific marketplace.

So thank you very much and we'll speak to you in, I guess, almost 60 days' time.

Thank you.

Ladies and gentlemen, this does conclude today's Henry Schein fourth quarter conference call.

You may all disconnect.